Should I pay off my mortgage or invest in another property?

If you've paid down your home loan early, devoting that extra cash to a property investment could be a wise strategy.

The decision to either pay off a mortgage or invest in another asset will depend entirely on the person, their assets, their liabilities and their aversion to risk and debt.

So, if you’re trying to figure out whether to pay off your mortgage or invest in another property, ask yourself, "How’s my cash flow and am I ready to take on a bit of risk?"

Compounding interest

Financial expert Noel Whittaker says the effects of compound interest demonstrate why it's a good idea to look for an additional investment as your original loan term comes to an end.

"How compound interest works is that as the loan term increases, small increases in payments make a big difference," he says.

For instance, if you owe $550,000 at 4.5% interest being repaid over 30 years, your monthly repayments will be $2,786.77 and you will pay a total of $453,236.91 interest. If you pay an extra $270 a month, you can take 5 years off the time it takes you to pay your mortgage and you will pay $367,202.21 in interest, saving yourself $86,034.70. To reduce the loan term from 30 to 20 years, you would need to pay an extra $690, taking total repayments to $3,476.77 and paying $285,514.95 in interest. But once the loan term is down to about 10 years, extra payments don’t help borrowers as much as if extra payments were being made on a 30 year loan.

"Once you reach a certain point in the loan term, about 10 years, compounding interest doesn't matter as much any more. Once you reach a 10 year term, you’re better off using your money to invest. If the mortgage is under control, you’ll save little to no interest on upping the payments and you’re missing out on what could have been five to 10 years' growth if you invested in another property," Whittaker says.

Brenton Tong’s tip for people looking to invest in a second property:

Financial Spectrum managing director Brenton Tong had this to add on making up your mind about taking on a second home or investment loan.

"The decision to invest in another property when you already have a home loan is a pretty big decision because you’re taking on more deb. Probably the most important consideration is your financial position at the time when you’re going to be looking at doing that, and the number one factor when you’re looking at your financial position is your cash flow," Tong says.

"You can have an enormous amount of equity in your property and you could almost have your property paid off, but if you don’t have the available cash flow to fund additional debt then you’re going to be putting yourself in harm's way. If, on the other hand, your debt is quite high and your equity is quite small yet you still have an abundance of cash flow, then quite possibly you might be in a position where you can get into property investment much earlier than you think you can."

Comparing home loans is a great way to grow your knowledge about your options.

Compare investment home loans

Rates last updated August 18th, 2018
$
Loan purpose
Offset account
Loan type
Your filter criteria do not match any product
Name Product Interest Rate (p.a.) Comp Rate^ (p.a.) Application Fee Ongoing Fees Max LVR Monthly Payment Short Description
3.89%
4.24%
$0
$0 p.a.
80%
Sharp interest only package rate
Fix your rate and minimise repayments for 2 years with this interest-only investor mortgage.
3.99%
3.99%
$0
$0 p.a.
80%
Special discounted interest rate
Get a discounted, low-fee investor loan from a convenient online lender. 20% deposit required.
3.98%
3.98%
$0
$0 p.a.
70%
Requires a 30% deposit
Investors can get a 100% offset account and a low rate if they have a big deposit. 100% online application process.
3.91%
3.92%
$0
$0 p.a.
80%
Add an offset account for $10 a month
Investors can go from application to approval in as little as 20 minutes with this innovative online lender.
3.97%
3.99%
$0
$0 p.a.
80%
Competitive investment package loan
Package your owner occupied loan with investment loan and receive a discounted investment rate. 100% offset account included.
4.09%
4.87%
$0
$395 p.a.
90%
10% deposit option available
Buy your investment property and set your repayments for the first year. Available in QLD, NSW and ACT only.
3.99%
5.17%
$600
$0 p.a.
90%
Available with a 10% deposit
Competitive rates for fixed for 3 years with redraw facility.
3.93%
3.94%
$0
$0 p.a.
80%
Competitive investor rate with plenty of features
This investment loan keeps fees low, has a sharp interest rate and comes with a 100% offset account.
3.99%
4.14%
$0
$0 p.a.
70%
Competitive investor mortgage for borrowers with a 30% deposit.
4.29%
4.31%
$0
$0 p.a.
80%
Flexible, low fee mortgage
Investors will pay no application or ongoing fees for this interest-only loan.
4.08%
4.09%
$0
$0 p.a.
90%
Low-fee investor mortgage with a partial offset account. 10% deposit option available.
4.18%
4.18%
$0
$0 p.a.
80%
Competitive investment mortgage
Investors get a 100% offset account and pay no application or ongoing fees on this loan from an innovative online lender.
3.99%
3.99%
$0
$0 p.a.
70%
Save on fees with this investor mortgage
Investors with a 30% deposit can get this low rate loan to fund their property portfolio.
4.29%
4.31%
$0
$0 p.a.
80%
Simple, flexible investment product
A simple, variable rate investor loan from an online lender that keeps fees to a minimum.
3.99%
4.62%
$395
$0 p.a.
80%
Flexible fixed investment loan
Investors can enjoy flexible repayments and an easy application process with this pioneering online lender.
4.24%
4.68%
$0
$0 p.a.
90%
Investor loan with a small deposit option
Fix your investment repayments for 1 year. You can get this loan with a 10% deposit. Available in QLD, NSW and ACT only.
4.13%
4.14%
$0
$0 p.a.
90%
Available with a 10% deposit
Access a fee-free offset account and a special interest rate for investors.
4.14%
3.96%
$0
$0 p.a.
80%
Low fee investor mortgage
Investors can go from application to full approval in as little as 20 minutes with this innovative online lender.
4.18%
4.19%
$0
$0 p.a.
80%
Line of credit for investors
Investors can easily access their equity using BPAY, a debit Master Card or cheque book with this interest-only line of credit.
4.31%
3.95%
$0
$0 p.a.
80%
Rapid online application process
A variable interest-only loan for investors. Fast application, low fees, optional offset account. 100% online lender.
4.14%
4.17%
$0
$0 p.a.
80%
Competitive rate for investors
Investors can enjoy flexible repayment options and pay no application or ongoing fees.
3.94%
3.92%
$0
$0 p.a.
80%
Add an offset account for $10 a month
Lock in your interest rate for 2 years and enjoy flexibility, an optional offset account and a fast online application process.
4.29%
4.27%
$0
$198 p.a.
70%
Lock in your investment rate for 3 years
Fund your property portfolio with this fixed rate mortgage which includes a 100% offset account. 30% deposit required.
3.84%
3.91%
$0
$0 p.a.
80%
Flexible low fee mortgage
Enjoy a fast application process and flexible repayment options with this fixed rate mortgage for investing.

Compare up to 4 providers

Home loan options to compare

Adrian Barclay

Adrian spends most of his working hours writing about home loans and everything property, as well as interviewing finance experts.

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Important Information*
UBank UHomeLoan Variable Rate - Discount offer for Owner Occupiers, P&I Borrowing over $200,000

Take advantage of a low-fee mortgage with a special interest rate of just 3.59% p.a. and a 3.59% p.a. comparison rate.

loans.com.au Essentials - Variable (Owner Occupier, P&I)

A competitive interest rate home loan with interest only options. Interest rate 3.64% p.a.
comp rate of 3.66% p.a.

Greater Bank Ultimate Home Loan - Discounted 1 Year Fixed LVR ≤90% ($150K+ Owner Occupier)

Loans over $150k get a discount off an already low fixed rate. Available for NSW, QLD and ACT residents only.

Newcastle Permanent Building Society Premium Plus Package Home Loan - New Customer Offer ($150k+ Owner Occupier, P&I) Discount 1

New borrowers or refinancers from another lender get a discounted rate with this package loan.

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8 Responses

  1. Default Gravatar
    colleenFebruary 24, 2015

    I am 61 and my husband 58. I no longer work but my husband still does. we have one property valued at around 380,000
    we have 300,000 in bank and have kept a home loan of 100,000
    this is offset by money in the bank and the rest of the money is earning interest at 3.6%.

    My question is do i pay of the mortgage, we will still have 200,000 in case we need it.
    my husband earns 95000 gross per year. and has superannuation. my superannuation is part of that 200,000. what is the equation for it to work for an investment property?. we would be hoping to resell the property in 5 years. how much rent would you need to be getting if you paid 260,000 for a property.

    • finder Customer Care
      ShirleyFebruary 24, 2015Staff

      Hi Colleen,

      Thanks for your question.

      Please note that finder.com.au is an online comparison service and is not in a position to be giving financial or investment advice.

      Regretfully this question is beyond the scope of this forum. It is recommended that specialist advice be sought from a financial planner.

      Cheers,
      Shirley

  2. Default Gravatar
    RAELENEJanuary 8, 2015

    My husband and I have recently bought our second investment through a brokerage agency.At the time my husband’s income was treble to what it is now.We also own another investment property which is more than 40 years old, we pay tax on the rental income from this property as is more than the expenses.We are also paying off a mortgage.Would we be better off selling the old property and pay off our mortgage and keep the new investment or not

  3. Default Gravatar
    JDJune 7, 2014

    Hello, we currently own our home in FL, with only $25K owing on an equity line of credit. We also owe $12,500 on a bank credit card. Our home is valued at approximately $275K. We live in Australia & pay $1100/month rent. Would it make sense to purchase a home or unit in Australia instead of paying rent each month? We rent our home out in FL about 6 months/year which covers most of our monthly expenses. Thank you

  4. Default Gravatar
    TeenaOctober 20, 2013

    Currently have two properties, however have lost my job, have rental coming from one property of 1700 and another coming in at 1500 a month, currently paying off both home and investment property, ANZ won’t structure or refinance differently for me, also have a line of credit am up to 50 now, limit is 80, am running out of ideas to save both homes, is there anything I can do apart from selling one, now before it gets worse, or is there a way to keep both going, am on temporary work as of Monday, but need some help fast,,!

    • finder Customer Care
      ShirleyOctober 21, 2013Staff

      Hi Teena,

      Thanks for your comment.

      Please see this page about your options, otherwise it may be worthwhile to seek financial counselling.

      Hope this helps,
      Shirley

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